Annuity Standards and Owner Rights

A contract rights issue is brewing as regulators and insurers develop annuity standards for the Interstate Insurance Products Regulation Commission (see May 20 posting.) The issue could advance this coming week if an annuity subgroup passes up standards for variable and non-variable annuities with guaranteed living benefits. The IIPRC parent committee would then take up the issue and conceivably it could be fully adopted during the summer meeting of the National Association of Insurance Commissioners.
So, stay tuned. Life insurers argue that there is a distinction between individual investors and institutional investors and that if institutional investors are allowed to buy these contracts, or more specifically, these contracts with the GLBs, they will profit off of the arbitrage of different pricing.
Some regulators and members of the Life Insurance Settlement Association, Orlando, Fla., are arguing that there needs to be a healthy secondary market. The argument sounds similar to an argument made during the development of life settlement models at the National Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y.
A couple of interesting arguments are being made. Among them is the argument by interested party Brian Staples of Right LLC, Versailles, Ky., that if the product is a variable product, then the producer has a fiduciary responsibility to advise the client on account provisions, benefits and potential hazards of investing in this product . One of the potential hazards he says is not being able to sell these products or riders attached to it to those in the secondary market.
Regardless of the outcome, it is important to remember that states have the right to opt out of any standard that they don’t agree with. So, states may say ‘no way, we’re not going to do anything that may even be perceived to violate an owner’s right.
That possibility raises still another issue: how uniform will treatment the right to sell GLBs actually be if some states say ‘yes’ and others, ‘no’ on the issue.